The idea of tax cuts as a fix for the nation’s ills is a popular myth. It has been the rallying cry against big government for as long as I can remember. This popularity does not mean tax cuts work. Ask Kansas, where they were finally tried. They lasted a year, and the legislature reversed this disastrous experiment. I have included these links to articles that have analysis on the Kansas failure for convenience at the bottom of this article.
The short story is that government simply can’t control its spending, so giving the money back immediately explodes the deficit to the point where its credit rating disintegrates, and the state can’t function. Taxes are simply required in order to pay for government spending; this isn’t magic. Tax reform is the “magic bullet”, which is supposed to somehow raise enough money to pay for the tax cuts. This tax reform is always some version of “less tax on greater growth will produce enough revenue”. This growth didn’t happen in Kansas. Leaders in economics around the world write of low growth being the new normal. I have included these links to articles that have analysis on projected US economic growth for convenience at the bottom of this article.
The Department of Labor says: “Moving forward, there are reasons to believe that growth will continue to be slower than was originally hoped. Annual U.S. GDP growth exceeding 3.0 percent, as experienced in the mid- to late 1990s and mid-2000s, is not expected to be attainable over the coming decade. The length and nature of the recession have left lasting scars on the economy.”
The Federal Reserve Bank says: “This Economic Letter argues that the new normal pace for GDP growth, in real (inflation-adjusted) terms, might plausibly fall in the range of 1½ to 1¾%. This estimate is based on trends in demographics, education, and productivity.”
If you look at the current estimates by the GOP that their tax cuts will expand the deficit by as much as 4 ½ trillion dollars over the next 4 years, you can understand how big a gamble this is. The 3 percent growth seen in the 1990s is twice what is expected. There is NO reason to expect that this doubling of growth will occur. The overwhelmingly likely outcome is that the national deficit will explode.
Exploding the deficit is not actually a problem for the GOP, although it flies in the face of 60 years of fiscal conservatism. In fact, it serves their purposes. The party is dominated by forces that want to tear down the social safety net. They want to eliminate paying out for Medicare, social security, Medicaid, etc. If they make the government so broke that the crisis occurs, then they will have the justification they need to eliminate those programs. The populist movement in America has grown because of government malfeasance. They want “small government”, and so killing government by having tax cuts as the first step is in their interests as well. You are watching the long game in action.
What is also not a problem for the GOP is that it provides the donor class a payback for services rendered. Make no mistake, that is what is going on here. The Koch brothers have even made public that their continued support depends on the success of the tax cuts. How does that square with GOP rhetoric that this isn’t a tax cut for the rich?
As an aside, consider whether the whole idea of trickle-down economics makes sense. First, it has been the official US economic policy since 1980, and one of the measured effects is a drastic increase in income inequality. This has driven an increase in use of social services, and therefore in government spending. Ask yourself: If I got a tax cut, would I pay my plumber or my mechanic more for their work? I bet the answer is “no”. Neither will corporations or rich people increase wages or pay more. This whole tax cuts thing is simply not going to help jobs or wages. If you have believed in any of the GOP economic policies since the 1980s, please stop drinking the kool-aid.
Many Americans feel that they don’t care if the rich get richer as long as they get a little richer. The problem is that how much you make is only one part of the equation. The other part is how much you spend. When there is no government aid, no social programs, a lot of people will suffer. When your parents need assisted living, and they don’t have enough to pay for it, sons and daughters will have to either turn their parents out in the cold to die, or take them in and increase their expenses as well as cope with the other difficulties. But that is so far down the road for most Americans that they are happy for some relief now, and they’ll figure out the future in the future.
The right-wing political money machine doesn’t need to worry about such things, and don’t care if normal Americans suffer. And suffer they will, as jobs continue to disappear. Technology is overwhelmingly used to decrease costs to industry. This automation costs repetitive jobs, and focuses value on “higher level” tasks that are difficult to automate. This has been a primary contributor to loss of jobs in the coal sector. Now, technology is working on automated driving. How long before those jobs are obsolete?
Not everyone is suited for “higher level” jobs. Not everyone can be a CEO, or a software developer, or an economist, or a lawyer, or a doctor. The nation has been, and will continue down this road. The GOP vision leads to a bad place for many Americans.
Due to the likelihood of the needs of Americans growing, we need a bigger social safety net. From dealing with the opioid crisis to job retraining to the national infrastructure, the government can’t afford to have less money. There needs to be more tax revenue, not less. Many Americans simply can’t afford more in taxes. I know who can afford it……the rich……the 1%. The ones funding the right-wing political money machine. Oh, yes, there will be screaming. There will be calls of the end of democracy. But we need more money.
I know that the above is a bad message to people who are convinced that government is corrupt and only out for itself. My answer is that it is finally time to have independent bodies with enforcement capability. We need to insist that government is not simply “a big sucking sound”. We want to make sure we are getting our monies’ worth. We don’t want to hear of ½ billion dollars in aid going to Puerto Rico only to find out that all the food is rotting on the decks of boats in the harbor. We don’t want to hear that 300 million dollar contracts go to 2 person companies to fix Puerto Rico because those companies are connected to the Secretary of the Interior. We don’t want to cozy up to Russia for the personal benefit of any politician. It’s got to stop.
Fixing our problems does not start with tax cuts. It starts with draining the swamp, not giving the swamp bigger predators.
Low growth links:
Editor – Political Nation
Twitter – @RepairmanBill